The role of the insurance producer has changed significantly in the past few years as clients and carriers are demanding a higher level of service from their insurance producers. Historically, the role of an insurance agent has been to sell products on behalf of a carrier. They were not charged with the role of providing the best coverage. Rather, they were charged with procuring the coverage requested by a client or informing the client that they cannot place the coverage. As a general rule the following definitions can apply to Agents and Brokers.
Insurance Agent defined:
Insurance agents are insurance professionals that serve as an intermediary between the insurance company and the Insured. As a broad statement of law, an agent’s liability to their customer is administrative. That is agents are only responsible for the timely and accurate processing of forms, premiums and paperwork. Agents have no duty to conduct a thorough examination of your business or to make sure you have appropriate coverage. Insurance agents can be either a Captive Agent, or Independent Agent. An agent by definition is working for an insurance company and operates within their guidelines.
Captive Agents: An agent who works for only one company and is a “captive” of that company. A captive agent will sell policies for that insurer.
Independent Agent: An independent agent is one who works as an agent for a variety of different insurers. An independent can produce policies for several different insurers and offer some comparisons of different insurance policies.
Insurance Brokers defined:
Insurance brokers can be best described as a kind of super-independent agent. Brokers can offer a whole host of insurance products for Insured’s to consider. Brokers are required to have a broker’s license which typically means that the broker will have more education or experience than that of an agent. Brokers also have a higher duty, in most states to their clients. Brokers have the duty to analyze a business and secure correct and adequate coverage for the business. This is a higher duty of that the pure administrative duty of the agent. Insurance Brokers can either be a Retail or Wholesale broker.
Retail Insurance Broker: A Retail Insurance Broker Is an individual or company that places insurance on behalf of clients. A broker is not an agent of an insurance company, rather a professional working on behalf of an insured. In a broker capacity, the broker owes a fiduciary responsibility to the insured, not the insurance company.
Wholesale Insurance Broker: A broker/agent who acts as an intermediary between a retail agent and an insurer, while having no contact with the insured. There are two types of wholesale brokers: managing general agents and surplus lines brokers. The latter work with the retail agent and the insurer to obtain coverage for the insured; but unlike a managing general agent, a surplus lines broker does not have binding authority from the insurer. Typically, a wholesale broker possesses knowledge and expertise relative to a specific line of business, beyond that of a retail broker.
Source: www.insurancepedia.com and www.businessinsure.about.com
Dual Agency The above definitions seem clear, however, the reality of the day to day functions of an insurance agent are blurred. An insurance agent or broker many times performs duties both on behalf of the insured and the behalf of the client. Examples are as follows:
• Placement of insurance
• Collection of premiums
• Preparation of Certificates of Insurance
• Processing of claims
• Analyzing coverage
When is the producer working on behalf of the company and the when is the producer working on behalf of the insured. The answer is it depends. The producer owes a fiduciary responsibility to those parties they represent. Although, the responsibilities of a producer as outlined in their contracts vary, we have found is that often the producer holds themselves out to a higher standard than the law requires sometimes by doing additional services or holding oneself out to be an expert.